The Quality of Internal Control, Property Right and Corporate Inefficiency Investment: Evidence from Chinese Listed Companies

Abstract

Abstract:

Whether the internal control, as an important means to improve corporate governance and to protect the interests of the investors, can play a role in restraining the inefficiency investment of the listing companies in China? Whether or not is it affected by the enterprise property rights? This paper examines the association among the quality of internal control, property rights and investment efficiency based on a sample of Chinese listed companies between 2007 and 2012. The main findings can be summarized as follows. First, high quality internal controls can reduce underinvestment and overinvestment associated with free cash flow. Second, high quality internal controls are more pronounced for private enterprise than state-owned enterprises. Third, among state-owned enterprises, the effect of high quality internal controls on reduction in underinvestment is stronger for local state-owned enterprises than for central state-owned enterprises. The above findings provide further insight on construction of the internal control system of enterprise from the improvement of the enterprise property rights system in China.

Key words: the quality of internal control, property rights, corporate inefficiency investments, free cash flow

Wang Zhi, Zhang Jiaojie, Zheng Qi. The Quality of Internal Control, Property Right and Corporate Inefficiency Investment: Evidence from Chinese Listed Companies[J]. , 2015, 27(9): 95-107.

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